There is a substantial risk of loss associated with trading Derivatives . Losses can and will occur. My methods will not ensure profits

Saturday, January 26, 2013

Scratch and Win

"Cut your losses and let your profits run”

You might have read this good old market wisdom a thousand
times. In reality it is easier said than done, especially in day trading. In
day trading arena trying to trend trade is a recipe for disaster.

Most of the time markets make narrow intraday moves in both
directions. Intraday trends will not sustain for long. If we patiently “let the
profits run”, we are going to get stopped out regularly. Most of our initial
gains will turn into losses.

The usual practice among most of the traders is that they
decide on a target and a hard stop. Once a trade is entered they wait till one
or the other is hit. In my opinion this method is not going to work. We may
require a more active trade management to win.

Let your profits run only during strong established trends
where you can trail your stops behind the flip zones. When the market is not in
a strong established trend, take small quick profits. Every trade should start
as scalp to the FTA (First Trouble Area). Once you feel the initial edge is gone, that is when the
market fails to break the FTA, exit immediately without hesitation. Never wait
for the market to hit your hard stop.

Do not wait till the market proves that you are wrong. Get
out if the market is not proving that you are right. This requires a different
approach. You may need to scratch a lot of trades.

Trade for extremely
consistent gains with “Tiny” losses rather than for occasional “Home Runs” with
a lot of “Small” losses